Sampat Aluminium Pvt.Ltd., Ahmedabad V. Dy. CIT, Circle-8, Ahmedabad

ITA 808/AHD/2015

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5703 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 08-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Assessee Lawyers: S N SHAH; FIROJ G BODLA A RS
• Keywords: Commercial expediency
• Section: 143(3); 201; 143(2); 208; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER SAMPAT ALUMINIUM PVT. LTD. 5/A, DEORA AVENUE, NR. RASHMI CO - OP. SOCIETY, NR. MITHAKHALI SIX ROAD, NAVRANGPURA, AHMEDABAD PAN: AAECS3524Q (APPELLANT) VS THE D CIT, CIRCLE - 8 , AHMEDABAD (RESPONDENT) REVENUE BY : S H RI S.K. DEV , SR. D . R. ASSESSEE BY: SHRI S.N. SHAH & SHRI FIROJ G. BODLA, A.RS. DATE OF HEARING : 28 - 11 - 2 018 DATE OF PRONOUNCEME NT : 30 - 11 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A. Y. 2010 - 10 , ARI SES FROM ORDER OF THE CIT(A) - 8, AHMEDABAD DATED 18 - 1 2 - 2 014 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2 . THE S OLITARY GROUND OF APPEAL OF THE ASSESSEE IS AGAINST THE DECISION OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 12 , 53 , 874 / - BY WORKING OUT INT E REST @ 12% ON AMOUNT OUTSTANDING/ADVAN CES TO DE ORA WIRES N. MACHINES PVT. LTD. BY INVOKING THE PROVISIO N OF SECTION 36(1)(III ) OF THE AC T. I T A NO . 808 / A HD/20 15 A SS ESSMENT YEAR 2010 - 11 I.T.A NO. 808 /AHD/20 15 A.Y. 2010 - 11 PAGE NO SAMPAT ALUMINIUM PVT. LTD. VS. D CIT 2 3 . THE FACT IN BRIEF IS THAT ASS ESSEE HAS FILED RETURN OF INCOME DECLARING INCOME OF RS. 33 , 83 , 500/ - ON 30 TH SEP, 2010. THEREAFTER, THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) OF THE ACT ON 21 S T SEP, 2011. ON SCRUTINY, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED INTEREST EXPENSES OF RS. 56 , 61 , 364/ - IN THE PROFIT AND LOSS ACCOUNT DURING THE YEAR UNDER CONSIDERATION. ON VERIFICATION OF THE DETAIL AND INFORMATION FURNISHED BY THE ASSE SSEE, THE ASSESSING OFFICER HAS NOTICED THAT OUT OF THE AFORESAID INTEREST EXPENSE A SUM OF RS. 20 , 60 , 290/ - HAS BEEN PAID TO VARIOUS CREDITORS ON ACCOUNT OF LATE PAYMENT MADE AGAINST THE PURCHASES. THE ASSESSING OFFICER OBSERVED THAT INTEREST PAID TO SUN DRY CREDITORS FOR LATE PAYMENT WAS NOT IN RESPECT OF BORROWED MONEY, THEREFORE, THE SAME WAS NOT ALLOWABLE U/S. 36(1)(III) OF THE ACT. THE ASSESSING OFFICER HAS FURTHER NOTICED THAT ASSESSEE HAS MADE HUGE SALE TO ITS SISTER CONCERN NAMELY DEORA WIRE PVT. LTD. H OWEVER, NO INTEREST WAS CHARGED ON LATE PAYMENT RECEIVED . EVEN T HE ASSESSEE HAS NOT CHARGED ANY INTEREST FROM SISTER CONCERN ON CREDIT ALLOWED BEYOND NORMAL PERIOD ON THE OTHER HAND IT HAS PAID INTEREST TO THE SUPPLIER ON LATE PAYMENT . ON QUERY, THE ASSESSEE HAS EXP LAINED THAT IT HAS NOT CHARGED OR COLLECTED INTEREST FROM ANY OF ITS DEBTORS AS THERE HAS BEEN NO BUSINESS CONDITION ABOUT THE CHARGING OF INTEREST AND THERE WAS NO AGREEMENT FOR COLLECTING OF INTEREST FROM DEBTOR FOR LATE PAYMENT. THE ASSESSING OFFICER H AS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND STATED THAT AS PER LEDGER ACCOUNT OF SISTER CONCERN OF THE ASSESSEE THE OUTSTANDING AMOUNT HAS REMAINED UN RE CO VERED BEYOND REASONABLE PERIOD AND NO INTEREST WAS CHARGED ON SUCH HUGE RECEIVABLES FROM ITS SISTER CONCERN WITHOUT ANY REASON . HE WAS OF THE VIEW THAT THE ASSESSEE HA D TRIED TO DIVERT ITS PROFIT WHICH WAS AN ABNORMAL BUSINESS PRACTICE. CONSEQUENTLY , THE ASSESSING OFFICER HAS WORKED OUT INTEREST @ 9% PER ANNUM AFTER ALLOWING NORMAL CRED IT PERIOD OF ONE MONTH WHICH WAS ALLOWED BY THE ASSESSEE TO OTHER CUSTOM ER AN D DISALLOWED THE INTEREST TO THE EXTENT OF RS. 20 , 60 , 290/ - PAID TO THE CREDITORS . I.T.A NO. 808 /AHD/20 15 A.Y. 2010 - 11 PAGE NO SAMPAT ALUMINIUM PVT. LTD. VS. D CIT 3 4. AGGRIEVED ASSESSEE HAS FIELD APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS PARTLY ALLOWED THE APPE AL OF THE ASSESSEE BY RESTRICTING THE DISALLOWANCE TO THE AMOUNT OF RS. 12 , 53 , 874/ - . RELEVANT PART OF THE DECISION OF LD. CIT(A) IS REPRODUCED AS UNDER: - 5. I HAVE PERUSED THE FACTS OF THE CASE AS ENUMERATED BY A.O. AND AS SUBMITTED BY APPELLANT. I HA VE PERUSED THE CASE LAWS RELIED ON BY A.O. AS WELL AS APPELLANT. IT I$ SEEN THAT LEARNING CIT(APPEALS) IN THE EARLIER YEAR DELETED THE ADDITION ON SIMILAR GROUNDS BY CONCLUDING THAT SINCE EXPENDITURE WAS INCURRED FOR BUSINESS PURPOSE AND GE NUINENESS OF THE EXPENDITURE WAS NOT IN DOUBT SO NO ADDITION COULD HAVE BEEN MADE BY THE ASSESSING OFFICER. IN THE COURSE OF APPELLATE PROCEEDINGS FROM THE COPY OF ACCOUNT OF DWNMPL, IT WAS NOTED THAT BESIDES THE TRANSAC TIONS OF SALE AND PURCHASE, THE APPE LLANT HAS ALSO ADVANCED LOAN TO THE TUNE OF RS. 55767607 ON DIFFERENT DATES DURING THE YEAR AND SAME IS ALSO SH OWN IN THE DEBTORS ACCOUNT EVEN THOUGH IT IS NOT RELATED TO PURCHASE. THIS FACT HAS NOT BEEN CONSIDERED OR WAS NOT PRESENT IN THE APPEAL OF EARLI ER YEAR. EVEN IF IT IS ACCEPTED THAT APPELLANT IS FREE TO GRANT CREDIT OR EXTRA TIME FOR PAYMENT TO ANY OF ITS CUSTOMER INCLUDING ITS SISTER CONCERN, THERE IS NO JUSTIFICATION FOR ADVANCING OF MONEY WHEN ALREADY DATED IS REQUIRED TO PAY HUGE AMOUNT BEYOND THE CREDIT LIMIT. IT IS FURTHER SEEN THAT THE APPELLANT HAS GOT SHARE CAPITAL OF ONLY RS. 1.08 CRORES AND RESERVES AND SURPLUS OF RS. 75.03 LAKHS. THESE AMOUNTS ARE HARDLY ABLE TO COVER THE MONEY ADVANCED BY THE APPELLANT TO ITS IMPUGNED SISTER CONCERN. TH E MAJORITY OF THIS AMOUNT IS ADVANCED IN THE MONTH OF FEBRUARY 2010 AND MARCH 2010. THE ISSUE WAS RAISED IN THE APPELLATE PROCEEDINGS ON 03/12/2014 AND WHILE FURNISHING THE DETAILS ON 08/12/2014, THE APPELLANT DID NOT EXPLAIN THE REASON FOR ADVANCE OF MONE Y TO EDITOR FROM WHOM ALREADY MONEY WAS RECOVERABLE ON ACCOUNT OF SALE MEAT TO IT WHILE I AGREE IN PRINCIPLE WITH MY PREDECESSOR THAT APPELLANT CANNOT BE FORCED TO CHARGE INTEREST FROM EDITOR ON THE GROUND THAT ITS CREDITOR IS CHARGING INTEREST FROM IT, I DO NOT FIND ANY JUSTIFICATION FOR ADVANCE OF FURTHER AMOUNT OF MONEY TO THE SAME DEBTOR. THE AVERAGE INTEREST AT THE RATE OF 12 PERCENT IS WORKED OUT ON THE MONEY ADVANCED AS BELOW: - MONTH AMOUNT CUMULATIVE SIMPLE INTEREST @12% APR - 09 0 0 0 MAY - 0 9 50000 50000 500 JUN - 09 200000 250000 2500 JUL - 09 0 250000 2500 AUG - 09 1500000 1750000 17500 SEP - 09 1000000 2750000 27500 OCT - 09 2350000 5100000 51000 NOV - 09 2950000 8050000 80500 DEC - 09 0 8050000 80500 I.T.A NO. 808 /AHD/20 15 A.Y. 2010 - 11 PAGE NO SAMPAT ALUMINIUM PVT. LTD. VS. D CIT 4 JAN - 10 0 8 050000 80500 FEB - 10 27269779 35319779 353197.8 MAR - 10 20447828 55767607 557676.1 TOTAL 1253874 RELIANCE IS ALSO PLACED ON THE FOLLOWING DECISION: PHALTAN SUGAR WORKS LTD. VS. COMMISSIONER OF INCOME TAX, 208 ITR 989 (BOM), WHEREIN IT HA S BEEN HELD AS UNDER: HELD : SEC. 36(1)(III), PROVIDES FOR DEDUCTION FOR PAYMENT OF INTEREST ONLY IF THE ASSESSEE BORROWS CAPITAL FOR ITS OWN BUSINESS. THE BUSINESS OF THE SUBSIDIARY COMPANY CANNOT BE CONSIDERED IN LAW AS THE BUSINESS OF THE ASSESSEE. THE FINDING OF THE TRIBUNAL BASED ON COMMERCIAL EXPEDIENCY APPEARS TO BE INCORRECT. THE FACT REMAINS THAT THE MONEYS BORROWED WERE UTILISED FOR BUSINESS OF THE SUBSIDIARY COMPANY AND NOT FOR THE BUSINESS OF THE ASSESSEE AS SUCH. IN THIS VIEW OF THE MATTER, THE TRIBUNAL WAS NOT JUSTIFIED IN HOLDING THAT THE INTEREST ON LOANS BORROWED FOR ADVANCING TO ITS SUBSIDIARY COMPANY WAS ALLOWABLE UNDER S. 36(1)(III). NO COMMERCIAL EXPEDIENCY OR BUSINESS PURPOSE OF THE APPELLANT IS SERVED BY ADVANCING THE MONEY TO ITS SI STER CONCERN. IN VIEW OF THIS, DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) IS CONFIRMED TO THE EXTENT OF RS. 12,53,874 AND APPELLANT GETS RELIEF OF RS.8,06,416. 6. IN RESULT, THE APPEAL OF APPELLANT IS PARTLY ALLOWED. 5. D URING THE COURSE OF APPELLATE PROCEEDINGS BEFORE U S , THE LD. COUNSEL HAS CONTENDED THAT LD. CIT(A) HAS INCORRECTLY RESTRICTED THE DISAL LOWANCE TO THE AMOUNT OF RS. 12 , 53 , 874/ - BY LEVYING THE INTEREST @ 12% ON THE AMOUNT OF LOAN AND ADVANCES MADE TO ITS SISTER CONCE RN WHEREAS THE DISALLOWANCE WAS WORKED OUT BY THE ASSESSING OFFICER AT 9%. THE LD. COUNSEL HAS ALSO GIVEN THE WORKING OF CHARGING INTEREST @ 9% WHICH COMES TO RS. 6 , 34 , 877/ - , THEREFORE, HE HAS REQUESTED THAT DISALLOWANCE SHOULD BE RESTRICTED TO THE AMOUN T OF RS. @ 9%. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF LD. CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE M ATRIAL ON RECORD CAREFULLY. THE LD. CIT(A) HAS HELD THAT THE IN THE EARLIER YEAR THE SIMILAR ADDITION WAS DELETED SINCE THE EXPENDITURE WAS INCURRED FOR BUSINESS PURPOSE ,H OWEVER, HE HAS NOTICED THAT DURING THE YEAR UNDER CONSIDERATION BESIDE THE TRANSACTION OF SALE , THE ASSESSEE HAS ALSO ADVANCED LOAN TO THE AMOUNT OF RS. 5 , 57 , 67 , 607/ - ON DIFFERE NT DATES DURING THE YEAR TO ITS SISTER CONCERN DWNMP L WHICH WAS NOT I.T.A NO. 808 /AHD/20 15 A.Y. 2010 - 11 PAGE NO SAMPAT ALUMINIUM PVT. LTD. VS. D CIT 5 RELATED TO ANY PURCHASE AND SALE TRANSACTION AND THIS FACT W A S NOT CONSIDERED IN THE APPEAL OF T HE EARLIER YEAR. HE OBSERVED THAT THERE WAS NO JUSTIFICATION FOR ADVANCING OF MONEY WHEN AL READY HUGE AMOUNT WAS OUTSTANDING FOR PAYABLE FROM THE SISTER CONCERN TO THE ASSESSEE. THE LD. CIT(A) HAS ALSO VERIFIED THAT ASSESSEE WAS NOT HAVING SUFFICIENT INTEREST FREE FUND TO ADVANCE THE HUGE LOAN WITHOUT CHARGING ANY INTEREST TO ITS SISTER CONCE RN. IN THE LIGHT OF THE ABOVE, FACT S AND CIRCUMSTANCES, WE OBSERVE T HAT LD. CIT(A) IS JUSTIFIED IN CHARGING INTEREST ON THE LOAN AND ADVANCES OF RS. 5 , 57 , 6 7,6 0 7 / - MADE BY THE ASSESSEE TO ITS SISTER CONCERN. HOWEVER, WE OBSERVED THAT LD. CIT(A) HAS ENHAN CED THE RATE OF INTEREST TO 12% FROM 9% CHARGED BY THE ASSESSING OFFICER WITHOUT ANY REASON AND JUSTIFICATION. IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES , WE ARE INCLINED WITH THE SUBMISSION OF THE ASSESSEE TO RESTRICT THE DISALLOWANCE OF INTEREST ON THE LOAN AND ADVANCES OF RS. 55 7607/ - MADE BY THE ASSESSEE TO ITS SISTER CONCERN @ 9% AS AGAINST 12% WORKED OUT BY THE LD. CIT(A) . T HEREFORE, WE DIRECT THE ASSESSING OFFICER TO DISALLOW THE INTEREST @ 9% ON THE AFORESAID LOAN AND ADVANCES MADE BY THE A SSESSEE TO ITS S ISTER CONCERN AFTER EXAMINATION, THE WORKING OF INTEREST SUBMITTED BEFORE US DURING THE COURSE OF APPELLATE PROCEEDING. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 30 - 11 - 201 8 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 30 /11 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. I.T.A NO. 808 /AHD/20 15 A.Y. 2010 - 11 PAGE NO SAMPAT ALUMINIUM PVT. LTD. VS. D CIT 6 BY ORDER/ , / ,